Question

Explain the circumstances which led to hyperinflation in Germany

Answer 1

It could be argued that the cause of the hyperinflation of Germany in 1923 was due to both the internal causes such as Germany's government policies and the external causes such as the Treaty of Versailles, demanding Germany to pay reparations.

Answer 2

The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services.

Hyperinflation effectively wipes out the purchasing power of private and public savings, distorts the economy in favor of extreme consumption and hoarding of real assets, causes the monetary base, whether specie or hard currency, to flee the country, and makes the afflicted area anathema to investment.